Question

Be Safe Security believes it can sell 15,000 home security devices per year at $28 apiece. They cost $19 each to manufacture (variable cost). Fixed production costs will run $30,000 per year. The necessary equipment costs $180,000 to buy and will be depreciated at a 25 percent CCA rate. The equipment will have zero salvage value after the five-year life of the project. When this project is over, there will still be other assets in the CCA class. Be Safe will need to invest $42,500 in net working capital up front, but no additional net working capital investment will be necessary. The discount rate is 18 percent, and the tax rate is 40 percent. What do you think o the proposal?